Voiceofreason01:The short SHORT version: the whole thing is built on fear and speculation far more than actual facts.

The short version is that a good portion of the copper in China is used as collateral and sits in warehouses. Now that China's zombie corporations can't kick the can down the road anymore, these financing deals are going to start to evaporate and the copper is going to have to hit the market.

I remember reading a few stories about large companies hoarding metal (like aluminum and copper) last year. They captured a huge amount of what was available and were creating artificial shortages which drove up prices and then charged a premium on top of that for delivery within a reasonable time frame.

gfid:I remember reading a few stories about large companies hoarding metal (like aluminum and copper) last year. They captured a huge amount of what was available and were creating artificial shortages which drove up prices and then charged a premium on top of that for delivery within a reasonable time frame.

gfid:I remember reading a few stories about large companies hoarding metal (like aluminum and copper) last year. They captured a huge amount of what was available and were creating artificial shortages which drove up prices and then charged a premium on top of that for delivery within a reasonable time frame.

Goldamn Sachs and Morgan Stanley were doing this with aluminum in Detroit. They would ship the metal back and forth between a set of warehouses located in Detroit. Cue Detroit joke.

The problem, as described in The Times by David Kocieniewski, is that since the bank entered this business, the time it takes buyers to get the metal from those warehouses has shot up to more than 16 months, from 6 weeks. Goldman has attributed the delays to a shortage of trucks and forklift drivers. But Goldman also pays incentives to owners of the metal to keep it in the bank's warehouses.

dsmith42:gfid: I remember reading a few stories about large companies hoarding metal (like aluminum and copper) last year. They captured a huge amount of what was available and were creating artificial shortages which drove up prices and then charged a premium on top of that for delivery within a reasonable time frame.

Goldamn Sachs and Morgan Stanley were doing this with aluminum in Detroit. They would ship the metal back and forth between a set of warehouses located in Detroit. Cue Detroit joke.

The problem, as described in The Times by David Kocieniewski, is that since the bank entered this business, the time it takes buyers to get the metal from those warehouses has shot up to more than 16 months, from 6 weeks. Goldman has attributed the delays to a shortage of trucks and forklift drivers. But Goldman also pays incentives to owners of the metal to keep it in the bank's warehouses.

Didn't read gfid's article yet, but I think the scheme is alleged to be similar in copper, although copper warehouses seemed to be less concentrated than the ones for aluminum. The major copper warehouse is in New Orleans, if memory serves.

The incentives on the aluminum storage help, but they didn't seem to be large enough to really cause the issue. I'm guessing what probably incentivizes the delays from the traders' side -- not Goldman, but the guys who actually own the metal -- is that the warehousing delays drive up the spot prices, so the bankers win with more rents and the traders win with higher prices once the stuff actually trickles out of the warehouses.

The Times articles were a bit confusing to me. They seemed to be suggesting that Goldman had built a kind of shadow warehousing sector outside the control of the London Metal Exchange (and thereby draining LME warehouses), but then the whole deal about moving the aluminum from warehouse to warehouse was based on LME rules.